John Thain is no stranger to repairing the damage of former CEOs. He left a successful career at Goldman Sachs (NYSE: GS) to take the reins at NYSE Euronext (NYSE: NYX) after Richard Grasso was ousted, then jumped aboard Merrill Lynch (NYSE: MER) last year to mend Stan O'Neal's love affair with CDOs.
Poor guy. Now he's the one taking flak from shareholders.
Speak now, or forever hold your peace
Back in January, Thain told investors, "We're very confident that we have the capital base now that we need to go forward in 2008." Phew, good news there. Then in March, not afraid to repeat himself, Thain reminded investors, "We have more capital than we need, so we can say to the market that we don't need more injections. We can confirm that we have tackled the problem." Good! Still nothing to worry about.
In April, on Merrill's first-quarter conference call, Thain sounded like a broken record, saying, "We are well capitalized under the risk weighted asset tests. And, for those of you who like to blog, we do not have any plans to raise any additional common equity."
All right, we the get the point, John.
Not so fast
Just last week, Merrill announced it would dump $30 billion in assets for $0.22 on the dollar. The writedowns forces Merrill to raise capital. Lots of capital. Enough to dilute existing investors by 38%, partly because Merrill has to compensate private investor Temasek for diluting its stake -- a provision gained when Temasek injected Merrill with capital last December.
Of course, investors are outraged. Not only are their shares being hosed down, but they're being hosed after Thain reminded them numerous times that no more capital was needed. What should we think of these actions? Is he a liar? A thief? An incompetent manger?
Please...
Give me a break. For one thing, Thain's job isn't to stay consistent with the press; it's to serve shareholders' best interests. There's no reason to believe his comments weren't sincere at the time -- the guy's human, and few thought the credit crunch would get as severe as it has. At the time he made his comments, Merrill probably didn't need any more capital. Things change, and as CEO, it's his job to respond to the changes.
Second, many of Thain's comments came at times when the market was debating the future of Bear Stearns and Lehman Brothers (NYSE: LEH). Had he gone the conservative route and suggested that more capital might be needed, he would have done more harm than good by giving short-sellers reason to swoop in.
It's easy to pick things apart in hindsight. Thain's one of Wall Street's most accomplished veterans -- shareholders should be thanking their lucky stars to have him. Sure, he may have damaged his reputation, but he probably did so in the name of looking out for shareholders. Altruistic, maybe not. But, incompetent? No way.
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